Funding your prototype/alpha, cash or debt?

2

I will be funding my first web startup with debt. My reasoning is, it would take 12-18 months to save the capital required (I'm not a coder) and I would rather launch early and update often during that time.

4 Answers

3

Debt only makes sense to if you can afford it if the startup fails. Think of it like vacationing on a credit card or spending cash to Vegas. Only spend what you can afford to repay and only gamble that which you're absolutely willing and able to lose.

Decide up front how much you can throw into this with zero return.

Do some cash flow projections on repaying the debt at various levels of business success. Run these projections by other experienced entrepreneurs until the numbers are conservative and realistic.

Based on 2, revisit number 1 and stick with it. This is your walk away limit and it cannot change or you'll easily find yourself throwing good money after bad.

thank you. I think setting a dollar limit for this phase is a must. After that limit has been invested I'll need to step back and take a good hard look at the business and it's potential for ROI.
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Bob Ross9 years ago

1

Be aware of debt especially as a non-coder. Assuming you don't have project management experience as non-coder it'll be really hard for you to estimate certain stuff, if you go in there with debt you'll get burned quite quickly.

Save some money, hire a guy, get the first prototype up and running then start knocking doors of angels, VCs etc. whatever you are after. Or just launch it as alpha if you have that kind of product.

I was in similar situation and I chose to not go into debt because from my previous startup experience I know it'd bring massive amount of extra stress (especially if you are married and have a certain life style ). A startup is really hard as it's you don't really need extra stress.

Thank you for your input. I agree it will certainly add more stress. I will likely launch in alpha while keeping my day job to provide cash flow for site improvements and to pay off the loan as soon as possible.
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Bob Ross9 years ago

0

Don't use debt, since you'll have to repay it eventually (with interest).

You forgot one key currency: sweat. If you are not a coder, find a co-founder who is, and will work for free^H^H^Hstock.

So for you the cost of debt+interest out ways the cost of experience+time (waiting 12-18 months to start)? It's a tough one, I know.
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Bob Ross9 years ago

0

Avoid Debt at all costs. Just remember one thing, the vast majority of startups fail, and if it does you will still have the debt. And at all costs don't put the debt on your house! If you take out a loan on your house and the biz fails you loose your house.